Chartered Accountant held guilty u/s 278 for abating firm to evade tax by signing accounts without verifying the stock statement submitted to bank
ABCAUS Case Law Citation:
ABCAUS 2323 (2018) (05) AC
Important Case Laws Cited/relied upon by the parties:
Sudeep Jain vs M/s ECE Industries Ltd in Cri. M.C. No. 1822/2013
National Small Industries Corp. Ltd. vs. Harmeet Singh Paintal and Anr., 2010 (2) SCALE 372
Chartered Accountant held guilty u/s 278 for abating firm to evade tax
The accused no. 1 was a partnership firm (firm) with accused no. 2 to 4 as its partners (collectively called “accused partners”) and accused no. 5 was the Auditor of the accused company during the relevant assessment year.
The firm filed its return duly signed by the accused no. 4. accused no. 3 & 4 also signed several documents during the course of assessment proceedings including statement of accounts, balance sheets, profit & loss account and other documents.
During the course of assessment, the Assessing Officer (AO) found that value of closing stock in trade of the firm as per its Profit & Loss account was different from the closing stock shown in the statement given to the bank. The return of income of the firm was accompanied by the report of the auditors i.e. accused no. 5 prepared on the basis of statement made by accused no. 3 & 4 without confirming and verifying the statement of account from the bank.
The Assessing Officer further found that the firm had claimed benefit under section 80 HHC of the Income Tax Act, 1961 (the Act) as worked out by the auditors without creating, corresponding equal reserves.
Thus, the AO was of the view that firm and the accused no. 3 & 4 intentionally and deliberately attempted to conceal true particulars of income and attempted to evade tax penalty or interest chargeable or imposable under the Act. They further made false statement in the verification of statements/ accounts and other documents which are false, and which they know or believe to be false or do not believe to be true.
A Criminal complaint was filed in the Court of Additional Chief Metropolitan Magistrate (ACMM). However, the said complaint was dismissed on technical ground. In the appeal, the Sessions Court upheld the order. Thereafter, the AO filed petition before the Hon’ble High Court wherein the order passed by ACMM and the Sessions Court were set aside with the direction to proceed further in the matter. Since accused no. 2 was already discharged, it was directed that he will not be prosecuted again.
During the Pre-charge evidence, the complainant examined the then ITO/AO who reiterated the facts of the case. He further deposed that penalty U/s 271(1)(c) was levied, the order challenging levying penalty before the CIT (Appeal) was partly allowed.
After pre-charge evidence, charge U/s 276-C(1)/277 r/w section 278-B of the Act against the firm, accused no. 3 & 4 and Section 278 of the Act was framed against the auditor. All accused pleaded not guilty and claimed trial.
In her statement, accused no. 3 submitted that she was a sleeping partner and a senior citizen of 74 years old and she had no idea why this case has been going against her. She claimed she was not handling the day to day affairs of the firm and she did not file any return of the firm nor did she sign any balance sheet.
The firm (through accused no. 4) stated that since the matter was over 30 years old , he did not recall facts about the present case and he was a senior citizen and suffering from various old age ailments. In his statement accused no. 5 stated that neither the firm nor he ever had any intention to withhold the correct income of the firm. In defence, accused did not lead any evidence.
The complainant (AO) argued that the accused had willfully evaded the tax by disclosing NIL income instead of disclosing the true income. On the other hand, accused submitted that there was no willfull attempt to evade the tax.
Persons responsible to and incharge of the conduct of the day to day business of the firm
The ACMM observed that as held by the High Court cicarious liability cannot be imputed merely on the ground that accused was director of the company. The vicarious liability on the part of a person must be pleaded and proved and not inferred. Same view has been taken by the Hon’ble Supreme court.
It was noted that admittedly the firm filed its duly signed return through accused no. 4. The accused no. 3 & 4 also signed several documents during the course of assessment proceedings. The accused no. 3 & 4 also filed duly signed and verified documents alongwith the statement of accounts, balance sheets, profit & loss account and other documents. The partnership deed was showing accused persons as the partners of the firm having agreed to share profit/losses. Same had not been denied by the accused persons. The accused persons had also not denied the filing of return. During cross-examination, no questions denying the culpability of accused persons was put to the ITO/AO (Plaintiff Witness/PW).
The ACMM observed that from the law laid down by the Hon’ble Supreme Court is is clear that a partner/director cannot be made personally liable for the offences committed on behalf of the firm/company and the criminal liability can not be extended to another partner/director merely by virtue of his being partner in the firm/company unless something concrete is proved on record to show that he/she was the person incharge and responsible for the conduct of the business of the firm/company.
The ACMM observed that in the instant case, apart from bare submisson in statement U/s 313 Cr.P.C., accused no. 3 had not led any evidence to show that she was not handling day to day affairs of accused no. 1. On the other hand, there were specific averments in the complaint about the liability of accused persons which had not been denied by positive evidence or even by leading evidence showing preponderance of probability in favour of the accused persons. Moreover accused no. 4 had not denied that he was also the person incharge of the affairs of the firm but had simply stated that since matter is very old he was not recalling the facts correctly. Thus, he held that accused no. 3 & 4 were responsible for the day to day affairs of accused firm.
The ACMM observed that the ITO had categorically stated that accused no. 5 had audited and verified the return of accused firm filed through accused no. 3 & 4. The said auditor had not denied the revised return, stock statement filed by the accused with Bank or the assessment order. Despite sufficient opportunities no questions denying the liability of accused no. 5 were put to the complainant witness. Hence, it stood proved that accused no. 5 was the Auditor who signed and verified the returns which were found to be false as amount of Rs. 1,00,000/- is shown less in the amount of stock in trade.
In view of the above, the ACMM held that accused firm alongwith its partners (accused no. 3 & 4) concealed its actual income for the relevant assessment year by showing less amount of stock in trade and claimed higher benefit U/s 80 HHC without creating a corresponding reserve which was not permissible under the Act and eventually evaded tax.
Consequently, ACMM held accused no.1 (the firm) guilty for the offence punishable u/s 276(C)(1) of Act r/w Sec. 278 of the Act.
It was further held that accused no. 5 the auditor/Chartered Accountant abated the firm and its partners to evade tax, interest and penalty by signing the statement without verifying the actual amount of cost of stock in trade and committed offence U/s 278 of Income Tax Act, 1961.
Since the return of income and its verification was not correct, hence, it was held that the firm, in its return of income, made a false statement in regard to its income. Accordingly the firm, accused no. 3 & 4 were also held guilty for the offence punishable u/s 277 of Income Tax Act.
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